Technology has changed the way we’ve done many things over the last 10 years. The way we listen to music, get news, communicate with each other, pay bills and even make “friends” have all seen dramatic impacts. So it should be no surprise that the way we purchase health insurance is changing as well. Americans purchasing their own insurance have already been taking advantage of the new tools and shopping platforms that technology has enabled, but soon, the way we buy insurance will experience a fundamental change that will affect the majority of Americans. In addition to new innovations and inevitable market forces, government legislation will also be a major catalyst that will usher in these changes.
To understand the future, we need a quick primer on the current system. The majority of Americans get their insurance through their employer. The employer owns the policy and decides on the carrier, the plan design and how much of the premium will be required from the employee if they want to participate in the plan. These employer sponsored plans have been decreasing in popularity and participation for the last 10 years.
This market shift has been driven by five major factors:
- The higher costs of employer sponsored plans—this is driven by the higher requirements of the plans thanks to state and federal mandates as well as the migration of the healthier population to the individual market and underwritten health plans.
- Desire to choose—choice of carrier, plan design, and premium differential helps individuals and families get the most for their money.
- No portability of coverage—when the employer based model began, most people went to work for a company and stayed there their whole career. Now, the average American changes jobs more than 11 times in their lifetime. In addition, less than half of small businesses even offer employer sponsored coverage anymore.
- Technology and innovation that make it easy and affordable to purchase your own coverage.
- Defined contribution cafeteria plan platform that allows employees to purchase personal health insurance plans tax free—putting it on a level, tax exempt status playing field as employer sponsored health plans.
Now let’s take a look at the present and the future. One of the critical factors that will shape the health insurance market over the next 10 years will be the action taken by the government.
If the recently passed Patient Protection and Affordable Care Act remains the law of the land, the CBO estimates that the purchase of personal health policies will double over the next five years. This estimate will turn out to be low. The PPACA includes many incentives starting in 2014 for people to purchase their coverage on their own and for employers to stop offering employer based coverage. These include state exchanges with government paid premium subsidies based on income and a minimum requirement for employers that will make it an easy business decision to pay a penalty and let their employees look to the state exchanges and personal health plan market to fulfill their health insurance needs.
If PPACA is found unconstitutional or is repealed and is replaced by the ideas that have been offered up by leading Republicans, then the employer sponsored model will be shifted to the individual market in the form of defined contribution plans combined with refundable tax credits that employees can use toward the purchase of personal health plans. Some proposals have also included a similar transformation of Medicare, Medicaid and Tricare.
Whichever way the political winds blow, the employer sponsored health plan is going the way of the employer paid pension plan, and will be virtually nonexistent after the year 2014. Here is a picture of what the market place will likely look like going forward.
- Employers set up their employee benefits by deciding eligibility and a dollar amount to contribute instead of choosing the carrier and plan for all the employees.
- Building on the technology in use now, brokers offer a private exchange solution for employees to shop for the best plans for their needs. Personal health plans as well as personal supplemental or ancillary benefits can be packaged and tailored to fit those needs. Brokers may also offer non major medical plans on a group voluntary chassis for better pricing, underwriting and plan design choices.
- Employees make their own decisions on plans and are able to payroll deduct, tax free, any of their own money needed to cover their premiums.
This simple, free market-based system will allow for benefits. Both employers and employees will get the most for their dollar and employees will have portable coverage that they can take with them regardless of their job situation. Plus, there will be more competition among insurance carriers due to the employee paying the full costs of their policies.
There will, of course, need to be a safety net for individuals with preexisting conditions. This could be provided by strengthening the current state high risk pools.
The bottom line is that a fundamental change in how we purchase insurance is coming. One that if done correctly, can actually improve the quality and affordability of health insurance for employers and employees, and not create an additional burden on the federal and state government’s coffers.
Joshua Hilgers is president of Health Partners America in Birmingham, Ala. He'll be speaking at the Benefits Selling Expo in May in San Antonio.